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Bertelsmann, the German media giant, has just reported a 10 per cent decline in sales and a 91 per cent fall in net income, attributing the red ink to a combination of delays in the release of albums by popular bands such as Outkast and The Strokes, and slow sales of CDs by Whitney Houston and Toni Braxton.

Universal's action on its labels, which include A&M and Island Def Jam, ended years of industry orthodoxy, with music executives contending that prices were justified by the risks of investing enormous sums in raw talent.

Don Van Cleave, a music retailer in Birmingham, Alabama, said: "This is like a bombshell. People are saying, like 'Oh my God, are you kidding?' "

Doug Morris, the chairman of Universal, said: "We are in the middle of a terrible situation where our music is being stolen.

"We need to invigorate the market, and as an industry leader we felt we had to be bold and make a move."

He explained that the price cut was part of a strategy that would include legal and technical assaults on the pirates. "We are making a very bold, strategic move to bring people back to music stores," Mr Morris said.

Universal is slashing the prices of every act, from Ashanti to Abba, with the exceptions of classical, Latin music and multi-CD box sets.

Whether other industry groups such as EMI, Sony, Warner and Bertelsmann will follow suit remains to be seen. It appeared that none was planning cuts immediately.

Universal added extra muscle to its move last night by telling retailers that, in exchange for cuts, the company expected stores to guarantee that at least a quarter of their shelf space would be devoted to its acts.

The company is also halting discounts and "positioning" fees for prominent shelf displays, which have long been a custom in the industry. Many record stores have earned more cash from fees than from selling CDs.

Jeff Kwatinez, the chief executive of The Firm, whose Universal clients include Mary J Blige and Limp Bizkit, said: "As a company concerned with overall artist development, we feel anything that increases consumer appetite for music, as a price decrease should, is good for the artist."

The price reductions come as the Recording Industry Association of America, the trade group representing the music business, is about to prosecute hundreds of people who have been downloading songs from the internet without paying.

California lawyers are fighting the case of a woman from Brooklyn, New York, saying that her constitutional rights were breached by a search for the 300 songs that she allegedly pirated.

It has just emerged that US music deliveries to shops dropped 15 per cent in the first half of this year, twice the rate of decline of a year earlier. This fall has caused widespread closures of record stores, mergers and redundancies.